China’s legislature convenes tomorrow in Beijing, and with it, a new Chinese buzzword has emerged as an answer to China’s economic woes: "supply-side" reform, the latest effort by president Xi Jinping to cure what ails China’s transitioning economy.
"The global economy is divided into a supply side and a demand side, of course, and for the last few decades, China’s economic growth was heavily fueled by the supply side," said Marketplace China Bureau Chief Rob Schmitz. "China is now moving away from that model towards a consumer demand economy, and hundreds of state-owned companies that, for decades, provided this supply-side growth, now have much less to do. So when Xi Jinping says supply-side reform, he’s talking about shutting down many of these operations that have been bleeding money in recent years, and cutting off state subsidies to them."
The move is reminiscent of 1980s America when President Ronald Reagan led a series of economic reforms that drastically cut government spending. But unlike 1980s America, says Schmitz, there are 800 million workers in China who will be impacted by these types of supply-side reforms. This week, China’s government announced it would lay off nearly two million steel and coal workers. "So this is going to present new challenges in rural parts of China that have sort of missed out on much of China's economic growth," says Schmitz, "so finding jobs for these millions of workers is going to be a big challenge for China’s government."
Another challenge for president Xi is restoring investor confidence in the Chinese economy. Earlier this week, the rating agency Moody’s lowered its outlook on China from stable to negative, saying it was uncertain whether China was actually implementing economic reform.